Beneficial owner registration: a game-changing amendment enters into effect in October
From 1 June 2021, the Beneficial Owner Registration Act following from the V. AML Directive has brought fundamental changes to the registration of beneficial owners in the Czech Republic, making life difficult for numerous companies and other entities. Less than half a year after the law entered into effect, the European Commission has identified serious shortcomings in the transposition. The Commission has thus made any drawing of funds from the National Recovery Plan by the Czech Republic conditional upon the shortcomings’ swift elimination. To this end, Czech legislators have already managed to discuss and adopt an amendment that will enter into effect on 1 October 2022.
Following from the AML Directive, the amendment better defines a material beneficial owner and narrows down the list of entities that do not have a beneficial owner. It also abandons the division of ‘beneficial owner’ into ‘ultimate beneficiary’ and a ‘person with ultimate control’.
Under the new rules, the material beneficial owner shall be any natural person who ultimately owns or controls a legal entity or legal arrangement (e.g., a trust fund). Decisive criteria are an ownership stake of at least 25% or the possibility to exercise decisive influence (control). A corporation is owned or controlled by any natural person who directly or indirectly:
- has a stake in a corporation or a share of voting rights of more than 25%
- holds the right to a share in profits, other own resources (equity), or a liquidation balance of more than 25%
- exercises decisive influence in a corporation or in corporations that individually or jointly have a stake of more than 25% in that corporation
- exercises decisive influence by other means.
Decisive influence in a corporation is exercised by its controlling entity and by any person who at their own discretion may directly or indirectly through another person or legal arrangement achieve that the decisions of the corporation’s supreme body correspond to their will.
If despite all efforts that may be reasonably required it is not possible to determine a material beneficial owner, or if a person without a beneficial owner exercises decisive influence in a corporation, then each natural person in the top management of the corporation shall be considered a substitute beneficial owner. The formal beneficial owner for certain entities (e.g., trusts, foundations, and public benefit corporations) shall remain unchanged and depend on the status or office of certain persons within the entity.
Please note that you have until 1 March 2023 to check whether your beneficial owners’ registrations comply with the modified definition and – if necessary – to make the records compliant with the amendment. During this time, changes to records in the register of beneficial owners made in connection with the amendment will be exempt from court fees.